An ancestor owned oil and gas rights - how do I get title to them?

We are seeing a lot of situations where our clients have learned that they own mineral rights that were earlier reserved by an ancestor.  They typically learn of this through an oil and gas company who has researched title on a parcel they are interested in leasing (or sometimes on a parcel that has already been drilled).  The company discloses who reserved the minerals and describes its efforts in establishing a family tree for that person.Based upon the company’s research (using Probate records, Ancestry.com and other tools) it determines those persons presently living who would have ownership of the minerals and the percentage of the minerals each such person owns.  Oil and gas leases are then prepared for those persons and recorded.   The parties signing the leases are paid a signing bonus based upon the “net” acreage they owned.  For example, if Grandpa Jones reserved one half the minerals under 100 acres, and he has two living grandchildren, each would own:  50% x 100 / 2 = 25 net acres.Most companies seem to be satisfied with the above process as far as getting leases in place, even though they are obtained from persons who do not hold “record” title.  That is, there is no chain of title at the courthouse from Grandpa Jones to his 2 grandchildren.Some companies, when it pertains to payment of royalties generated by production of oil and gas, want greater comfort that they are paying the proper persons.  They sometimes require mineral owners to firm up their title to the minerals.  This seems  even more likely when the party who signed the lease has passed away; they want the next generation to get something on record at the courthouse establishing their ownership of the minerals.So, exactly how does an heir get Granddad’s minerals properly titled in their name?  There would seem to be two ways to skin that cat in Ohio.  The simplest way, which may or may not be acceptable to the lessee for purposes of paying out royalties, would be using Ohio Revised Code 317.22.  It allows an heir to record an affidavit about the family history, who died, and who the living heirs are.   At the same time, the heir can prepare and record a deed to the living descendants of the person who reserved the minerals .While this is a fairly simple process and causes such descendants to be the presumed owners of the mineral interests, their interest remain subject to attack from others -- for example, if the affidavit failed to include a living ancestor, he could step up later and claim a share of ownership.  Under Ohio's Marketable Title Act, if no one puts something on record to challenge the affidavit or related deed within 40 years after they were recorded, the ancestors filing same would then have clear title.The second way of transferring ownership involves the use of Probate Courts.  In the example above, a Probate estate would be opened for Grandpa Jones (or re-opened if an estate had been opened in the past).  A certificate of transfer would be issued by the court to Grandpa’s heirs, which effectively functions like a deed and which is recorded in the county where the minerals are located.  If Grandpa had a wife that survived him, her estate would also need to be opened.  Estates for her children would need to be opened and ultimately we would end up with a chain of tile from Grandpa to his 2 grandchildren.  If any of the above resided outside of Ohio, estates would need to be opened in the State of residence.  Even where all the parties reside in Ohio, they may have lived in different counties and the Probate estates would need to be opened in the various counties where the decedents resided.The Probate process described above can easily escalate depending up on the number of generations involved, the number of children in each generation and the States or counties of residence.  If the subject mineral interest covered a small tract and if the person trying to solve the problem is one of 16 grandchildren, it simply may not make sense to expend the filing, recording, and legal fees necessary to go forward with the Probate process.In effort to avoid the above problems for future generations, some clients decide to title the minerals in an entity such as a Limited Liability Company or a trust.  This avoids having to later probate the asset.

Zoning - Oil and Gas issues

Regulating oil and gas via zoningThe last twenty years oil and gas drilling for Clinton Sandstone wells has moved into urban areas, as drilling locations in rural areas have been used up.  Under the concept of “home rule” enjoyed by municipalities, cities and villages enjoy broad police powers to regulate health, safety and public welfare.   As a result, a number of Ohio communities attempted to “zone-out” or otherwise regulate away drilling activity.  In State ex rel. Morrison v. Beck Energy Corp., Slip Opinion No. 2015-Ohio-485, the Ohio Supreme Court ruled that a municipality could not impose its own stringent well permitting requirements on top of the state’s system of regulation.  The court found that under O.R.C. 1509, the Ohio Department of Natural Resources is given the sole authority “to regulate the permitting, location, and spacing of oil and gas wells and production operations.”  Under Section 1509.02 local governments have limited regulatory powers, so long as those powers are not exercised “in a manner that discriminates against, unfairly impedes, or obstructs oil and gas activities and operations regulated under [Chapter 1509].”

Zoning - Open Spaces

Open space preservationModern zoning planning has recognized the virtue of preserving open spaces, not only by establishing parks and recreation areas, but also by preserving the rural character of certain parts of communities and restraining urban sprawl.  This can be accomplished in several ways.  Agricultural zoning prohibits the use of land for commercial, industrial and residential purposes.  Cluster zoning assigns a given amount of land a certain amount of open space, but allows the developer flexibility in arranging the density of his buildings.  One portion of the project would be intensely developed, with open space aggregated to better effect elsewhere.The last several decades have seen increasing use of Planned Unit Developments (“PUD’s”).  A PUD allows mixed use (residential and commercial, along with public spaces) as part of a large, over-all development.  Under O.R.C. Sec. 519.021, a board of trustees may set standards for planned unit developments in its zoning code that do not apply to any particular property, but which can be invoked by a developer in his or her application for a zone change under O.R.C. 519.12.

Flexibility in Zoning Laws

Non-conforming usesA nonconforming use is a use of property that predates the zoning code or, after enactment, was initially permitted, only to have the code subsequently changed.  The nonconforming use is allowed (O.R.C. 713.15) to continue because of the unfairness in forcing one who has invested in building in reliance on former law to be forced to cease operation and due to the fact that enforcing the new code against the “grandfathered” use may not be legal for constitutional reasons.  A nonconforming use may not be expanded.  Additionally, zoning codes typically provide that a use discontinued for a period of time acts as conclusive proof of the intention to abandon the use.Conditional usesA landowner may apply for an exception to an established zoning classification and this is called a “conditional use.”   One example might be permitting the construction of a church is an area zoned residential.  The proposed use most people would say is not out of character with a neighborhood.  The applicant petitions the local zoning board or planning commission and argues that his/her proposed use should be allowed and will not adversely affect nearby landowners.  Notice is given to neighbors and public hearings are held on the application.  Conditional use permits provide flexibility to what would otherwise be a rigid system of land use planning.VariancesA second “relief valve” from rigid planning requirements is the zoning variance.  An area variance might be applied for, for instance, where the configuration of a lot, or its unusual slope, would otherwise prevent or make exceedingly difficult the construction of a residence without a change in the set-back requirements.A use variance is similar to a conditional use permit in that the applicant requests a change in the permitted use in the zone in question.  The use should not be totally out of character with the neighborhood and should not benefit unfairly the applicant, otherwise a charge of “spot zoning” might arise.  Spot zoning is the improper allowance of a use at variance with the original planning for the zone in question that harms existing rights of established landowners, while manifestly benefiting the applicant.Zoning amendmentsAmendments to zoning ordinances may be initiated on motion of a township zoning commission, upon a resolution of the township trustees, or upon an application filed by a property owner (O.R.C. Sec. 519.12).  Public hearings are to be held after notice to affected property owners.  If the trustees adopt a proposed amendment, it goes into effect, unless within 30 days after adoption, a petition, signed by 8% of the number of voters who voted in the most recent general election for governor, is filed requesting the matter be put on the ballot for referendum.  Zoning amendments need be judiciously considered so as not to compromise over-all land use plans in a community.

Township Zoning in Ohio

OverviewIn Ohio over four million people live in unincorporated townships, the majority of which have enacted zoning ordinances.  Reasons include controlling what are, in the eyes of the community, inappropriate uses, dealing with growth pressures, and promoting economic development.Governing LawThe authority for townships to enact zoning codes is found in Ohio Revised Code Sec. 519.02, which authorizes the regulation of the:•    location, height, bulk, number of stories, and size of buildings and other structures;•    percentages of lot areas that may be occupied, set back building lines, sizes of yards, courts, and other open spaces, the density of population, the uses of buildings and other structures;•    uses of land for trade, industry, residence, recreation, or other purposes; and•    landscaping and architectural standards.Zoning boards are authorized to “divide all or any part of the unincorporated territory of the township into districts or zones of such number, shape, and area as the board determines.”To assist zoning boards and provide advice to local township officials who may lack land-use expertise, county and regional planning commissions are authorized by O.R.C. Sec. 713.22 and 713.23.  They are charged (with the county engineer) with preparing studies, maps and recommendations touching on such things as:•    Regional objectives, opportunities, and needs and priorities;•    Economic and social conditions;•    Pattern and intensity of land use and open space;•    The general land, water, and air transportation systems, and utility and communication systems;•    Locations and extent of public and private works, facilities, and services;•    Locations and extent of areas for conservation and development of natural resources and the control of the environment;•    Long-range programming and financing of capital projects and facilities;•    Contracting with and providing planning assistance to other units of local government;•    Coordinating the planning with neighboring planning areas; cooperating with the state and federal governments in coordinating planning activities and programs in the region;•    Reviewing, evaluating, and making comments and recommendations on the planning, programming, location, financing, and scheduling of public facility projects; and•    Carrying out all of the functions and duties of a director of economic development.County OversightA board of county commissioners may formally adopt and record a plan and thereafter “no public building, roadway, bridge, viaduct, or other public improvement or utility, publicly or privately owned, whose construction or location would constitute a departure from the plan, shall be constructed or authorized by the board except by unanimous vote”.If a township proposes to adopt zoning, the county or regional planning commission is to be given a copy of the plan for comment and approval that it is consonant with over-all county planning.  Thereafter, the plan must first be approved by the township trustees and then must be adopted by majority vote of the township voters.

Zoning in Ohio - Overview

HistoryZoning codes grew out of the limitations inherent in using the legal theory of nuisance as the sole tool for regulation of growth in American cities at the turn of the 19th century.  In that era, if a neighbor, for instance, was affected by the operation of a smelly slaughterhouse, he or she had to file a nuisance complaint in court and let a judge decide whether the noxious activity was appropriate for the neighborhood.  No planning was involved.  Issues relating to building uses, heights and location were handled by courts on an ad hoc basis.Toward the end of the 19th century, new construction techniques (the first passenger elevators were installed in New York in the 1870’s) allowed construction of ever taller buildings, which permitted increased population density.  At the same time, developing public transportation systems (street cars and subways) allowed workers to live at a distance from the factories and businesses that employed them.  This suggested changes to the character of neighborhoods.  It seemed to make sense in these circumstances to separate the areas where people lived from the factories in which they worked.  It followed that reconciling land uses through litigation, as opposed to planning, became problematic.PresentlyZoning, as we experience it today, developed in the U.S. as the result of a Supreme Court case arising in Ohio in the 1920’s, Euclid v. Amber.  In the little suburb of Euclid a comprehensive zoning ordinance was enacted in an effort to avoid being overwhelmed and absorbed by its big industrial neighbor, Cleveland.  That town enacted a code that divided its territory into areas in which building sizes and uses were regulated according to zone.  A land developer, Ambler Realty, sued claiming that the new laws substantially diminished the value of its 68 acres and that Euclid had “taken” value from it in derogation of the due process clause of the 5th Amendment, made applicable to the states by the 14th amendment.At this point in time “takings” cases had involved situations where governments had physically appropriated whole parcels of land, as in the case where a City condemns property in order to build a road.  Ambler Realty argued for the recognition of a “regulatory taking” where the imposition of a regulatory scheme—in this case zoning—so burdened land as to meaningfully deprive a property owner of significant value.Euclid argued its zoning scheme was a fair and reasonable application of its inherent police powers as a necessary measure to prevent nuisances.  The U.S. Supreme Court held that, in order to show a due process violation, the developer would have to have demonstrated that the zoning ordinance was discriminatory and lacked any rational basis.  Failing that showing, the court allowed zoning as a proper exercise of police power asserted for a legitimate public purpose—preventing obnoxious nuisances and furthering the public welfare.LimitationsThe Court did not give carte blanche to regulators, however.  Two years later it was presented with a Massachusetts case, Nectow v. the City of Cambridge and an even more restrictive zoning ordinance, which this time clearly deprived a landowner of the value of his land.  In Nectow the Court found that the zoning code in question was, “serious and highly injurious.”  It said, “The governmental power to interfere by zoning regulations with the general rights of the land owner by restricting the character of his use, is not unlimited, and, other questions aside, such restriction cannot be imposed if it does not bear a substantial relation to the public health, safety, morals, or general welfare.”Since then, a large number of cases have been litigated between the bookends of Euclid and Nectow.  The regulating community of planners and government-centric folks push to expand zoning initiatives, while property owners and the business community push back.  An example is the case of Lucas v. South Carolina Coastal Commission where in 1992 a landowner purchased beachfront land for a million dollars and was refused permission by the regulators to build upon it.  The government’s position was it this was for the public good of preserving the beach front view (of course it did not want to pay for the preservation…).  The Supreme Court recognized what has been characterized as a “regulatory taking,” essentially saying, “if you have identified a public good of critical importance, which substantially deprives a landowner of the value of property—pay for it, as required by the Fifth Amendment.”How do I invalidate a zoning rule/regulation?The constitutionality of a zoning provision can be challenged in Ohio by filing a declaratory judgment (O.R.C. Sec. 2701) or by administrative appeal (O.R.C. 2506).  In addition to the protections of the U.S. constitution, that of Ohio affords protects property right protections as well:•    Article 1:  “All men… have certain inalienable rights, among which are those of … acquiring, possessing and protecting property…”•    Article 16:  “All courts shall be open, and every person, for an injury done him in his land … shall have remedy by due course of law, and shall have justice administered without denial or delay. Suits may be brought against the state, in such courts and in such manner, as may be provided by law.”•    Article 19:  “Private property shall ever be held inviolate, but subservient to the public welfare….  [W]here private property shall be taken for public use, a compensation therefore shall first be made in money, or first secured by a deposit of money; and such compensation shall be assessed by a jury, without deduction for benefits to any property of the owner.”It goes without saying that there will ever be tension between regulators eager to expand their authority and individuals straining to protect property rights.